They already did a simular setup with the 60 gig PS3. It was expensive, because they had to basically build a PS2 within the PS3. They were later able to emulate the Emotion Engine (CPU) of the PS2, but it had issues. They would later remove all of the hardware that made it possible for the PS3 act like a PS2, without tweaking emulation for each title.

Yes, it can be done, with the inclusion of the Cell processor, but Sony's aim with the PS4 was to eliminate any added costs to the hardware, like they had with the PS3 at launch.